Twin Vee PowerCats Co. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Twin Vee designs, manufactures, and sells recreational and commercial boats. Its operations include gas-powered boats, electric-boat development through publicly traded subsidiary Forza X1, and a developing franchise business. The company reported 9.52 million common shares outstanding as of November 14, 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $8.08 million | $8.81 million | $24.98 million | $23.22 million |
| Gross profit | $2.54 million | $3.33 million | $7.92 million | $9.22 million |
| Gross margin | 31.0% | 31.8% | 31.7% | 39.7% |
| Operating loss | $(2.78) million | $(0.86) million | $(8.19) million | $(2.38) million |
| Net loss | $(2.44) million | $(0.89) million | $(6.18) million | $(2.62) million |
| Basic loss per share | $(0.20) | $(0.10) | $(0.46) | $(0.35) |
Cash flow: For the first nine months, operating activities used $6.93 million, investing activities used $11.06 million, and financing activities provided $6.89 million. Cash, cash equivalents, and restricted cash declined by $11.10 million to $12.40 million. The company also held $11.60 million of marketable securities.
Liquidity and liabilities: Working capital was $27.40 million, versus $26.10 million at year-end 2022. Total liabilities were $9.07 million, including $2.91 million of finance lease liabilities, $1.04 million of operating lease liabilities, and a $0.50 million SBA EIDL loan. Accounts payable was $3.63 million. Management said cash, cash equivalents, and marketable securities should fund operations for 24 months from the filing date, while noting expected higher Forza costs for a planned manufacturing facility.
Changes and operating drivers
- For Q3, sales fell 8% year over year even though boat units sold rose 25%; lower-priced monohulls, dealer discounts, and rebates weighed on revenue. For the first nine months, sales increased 8% and boats sold increased 31% to 193 units, but average selling price declined 18% to approximately $129,333.
- Gross margin declined to 31.7% for the nine-month period from 39.7%. Management attributed the deterioration mainly to a shift toward lower-priced 220 monohulls and competition in that market.
- Nine-month operating expenses rose 39% to $16.11 million, driven by higher salaries and staffing, selling and marketing, professional fees, and depreciation. Forza’s electric-boat segment generated no revenue and incurred a $4.54 million nine-month loss.
- Operating cash use increased from $2.58 million to $6.93 million, in part because inventory increased $4.13 million. Management cited early inventory purchases amid component availability, lead-time, and pricing uncertainty and said it intended to reduce new orders and use existing inventory in production.
Outlook, risks, and notable items
- Management said Forza anticipated beginning electric-boat and motor sales in late 2023, while also stating it expected to continue prototype development for six to nine months. No quantified revenue or earnings guidance was provided.
- The company reported light demand for legacy AquaSport models at its White Bluff, Tennessee facility and disclosed that it closed the facility in November 2023, consolidating production in Florida. It plans new AquaSport models, including the 240 CC and 280 CC, over the following two quarters.
- Forza’s proposed North Carolina manufacturing facility depends partly on meeting conditions for up to $1.37 million of state grant reimbursements, including more than $10.5 million in qualifying investment and job creation. Receipt is not assured; the facility’s planned cost is not clearly stated in the filing text.
- Other income for the nine-month period included $1.27 million of Employee Retention Credit income and $0.73 million of dividend income. These items helped offset operating losses and are not equivalent to core boat-sales earnings.
- Potential exposures include dealer floor-plan repurchase obligations of approximately $8.80 million covering 58 units, significant dealer concentration (one dealer represented 20% of nine-month sales), supplier dependence, and cash balances above FDIC-insured limits. No repurchase events were reported in the period.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2023 because of a material weakness related to insufficient personnel or outside expertise in GAAP reporting, particularly for complex instruments. Remediation steps were underway, but testing was continuing.
- The filing states management believes the company is operating near capacity in Fort Pierce. Forza’s limited access to that facility could constrain electric-boat production until a separate facility is available.
Investor verification points
- Track whether boat demand, unit sales, pricing, and product mix stabilize, and whether gross margins recover from the nine-month decline.
- Verify progress on Forza commercialization, production capacity, facility plans, and the conditions and timing for grant funding.
- Monitor cash burn, inventory deployment, capital spending, and the accuracy of management’s stated 24-month liquidity runway.
- Assess the financial effect of the Tennessee facility closure and Florida consolidation, including any related costs or asset impacts.
- Review remediation testing and future disclosures regarding the material weakness in financial reporting controls.
- Confirm the treatment and cash collection of ERC income, the status of dealer repurchase exposure, and the concentration of sales among major dealers.